Express Choice of Law to Govern Arbitration Clause

“This clause [number] shall be governed by [insert law governing main contract]”

As an arbitration clause is generally regarded as legally distinct (or separable) from the main agreement in which it is located, consider adding this wording to the end of your arbitration clause where your seat of arbitration is different from the governing law of the main contract.

In particular, where you have selected England as a seat of arbitration but your contract is governed by the law of a different country we suggest that the wording would be helpful. It is intended to deal with the fact that the English conflicts of law rules that determine the governing law of an arbitration clause (in the absence of express choice) require, in theory, the court to look, on a case by case basis, at the surrounding factual circumstances to determine between the contractual governing law and the law of the seat.

Whilst the results in cases have been supportive of the arbitration clause, this is as an application of those rules rather than the actual rule itself and, following the decision of the Court of Appeal in Sulamerica CIA Nacional de Seguros SA and others v Enesa Engenharia SA and others [2012] EWCA Civ 638 (see here for more), the recent trend is towards greater certainty through the use of an express choice.

The clause above expresses a choice in favour of the governing law of the main contract. Commercial parties intend that one law is to govern their relationship and their lawyers will generally have drafted the arbitration clause in that context. So, unless there is some overriding reason not to, it makes sense to keep matters consistent. As before, it will of course be necessary to ensure the clause is properly drafted and works under that law.

In like circumstances where your seat is not in England (i.e. your contract specifies the law of state X and your seat is in state Y) it will be a question to put to local lawyers advising on the consequences of the choice of seat as to whether, in the light of the seat’s conflicts of law rules, the use of such wording could be similarly beneficial.

Note that where the LCIA Rules have been chosen, the version of the LCIA Rules that will be applicable to LCIA arbitrations commenced on or after 1 October 2014 contain a provision (Article 16.4) which states that the law applicable to the arbitration agreement shall be the law applicable at the seat of arbitration. This appears to confirm that, uncontroversially, the parties consent to the applicable law of the arbitration clause being that which would be applied at the seat of arbitration once the seat’s rules as to the applicable law of an arbitration clause have been applied.

A competing interpretation may, however, be that this article is an express choice in favour of the law of the seat of the arbitration. Although this may not be the better view (the article does not refer to the law of the seat, rather the law applicable at the seat) there remains a potential ambiguity as to whether such a choice has been expressed. Where the LCIA Rules have been selected, resolution of this ambiguity therefore provides another reason why, in cases where the governing law of the contract and the seat do not match (i.e. where there is room for debate as to the governing law of the arbitration clause), parties may see fit to make express provision as to the governing law of their arbitration clause in the clause itself.

Aside from the provisions of the LCIA Rules discussed above, the main institutional rules discussed on this site - i.e. those of the ICC, UNCITRAL, HKIAC, SIAC, CIETAC, PRIME and SCC - do not make any relevant provision on this issue. However, if using some other set of rules do, if also not otherwise expressing a choice of law on this point, consult their provisions to understand if any default provision on this matter is otherwise made (for example, the 2016 DIFC-LCIA Rules contain a provision identical to that found in the LCIA Rules as discussed above).